Friday, June 11, 2010

Warren Buffett on the Next Financial Crisis

While testifying before the FCIC last week on unrelated matters, Warren Buffett of Berkshire Hathaway (NYSE:BRK-A) fame was asked about where he sees the next financial crisis in the United States coming from, and while it wasn't surprising to me because I've known the risks for some time, it could be enlightening for those who aren't aware of it at this time.

Buffett's response? Municipal bonds.

The problem is the same reasoning behind the current economic crisis and debt load, is the same reason for the upcoming bursting of the muni-bond bubble, and that is the complete and irresponsible spending by politicians who refuse to say no.

Worse than that, it's the usual entitlement spending which the government is locked into which is unsustainable, but again, the politicians refuse overall to stop these types of programs, cut taxes, and encourage the private sector to take care of things.

According to George Soros, he said a couple of months ago, that the best way to invest in relationship to this situation is to go "short on bonds by buying a CDS contract carries." He added it would almost guarantee "unlimited profit potential."